Earnings Call Transcript - CTSO Q1 2021

Operator, Moderator

Good afternoon and welcome to the CytoSorbents First Quarter 2021 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks, we will open the call for your questions. Please be advised that the call will be recorded at the company's request. At this time, I'd like to turn the call over to our moderator, Amy Vogel.

Amy Vogel, Moderator

Thank you and good afternoon. Welcome to the CytoSorbents first quarter 2021 financial and operating results conference call. Joining me today from the company are; Dr. Phillip Chan, Chief Executive Officer; Vincent Capponi, President and Chief Operating Officer; Kathleen Bloch, Chief Financial Officer; Dr. Efthymios Deliargyris, Chief Medical Officer; Dr. Christian Steiner, Executive Vice President of Sales and Marketing and Managing Director of CytoSorbents Europe GmbH; and Christopher Cramer, Vice President of Business Development. Before I turn the call over to Dr. Chan, I'd like to remind listeners that during the call management's prepared remarks may contain forward-looking statements, which are subject to risks and uncertainties. Management may make additional forward-looking statements in response to your questions today. Therefore, the company claims protection under Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from results discussed today. And therefore, we refer you to a more detailed discussion of these risks and uncertainties in the company's filings with the SEC. Any projections as to the company's future performance represented by management, include estimates today, as of May 4th, 2021 and we assume no obligation to update these projections in the future as market conditions change.

Phillip Chan, CEO

Thank you very much, Amy, and good afternoon, everyone. We had another productive quarter in the first quarter of 2021 with CytoSorb sales of $10.1 million, up 24% from $8.2 million a year ago, with the core underlying non-COVID business accounting for 82% of sales and 27% growth year-over-year. We believe that sales would have been even higher if not for broad restrictions and lockdowns throughout Europe and other countries that impacted sales activities and rapidly declining new COVID-19 cases globally in the first two months of the quarter. Blended product gross margins were 77% in the first quarter of 2021 versus 76% in the first quarter of 2020. Excluding non-recurring one-time items in the first quarter of 2021 that Kathy will detail later in her presentation, product gross margins were 81%. We ended the quarter with a solid balance sheet with $68.5 million in cash and no long-term debt. During the quarter, we delivered greater than 131,000 cumulative CytoSorb cartridges to date, which is up 49% from 88,000 a year ago, with distribution across 67 countries. We treated more than 5,750 COVID-19 patients cumulatively now in more than 30 countries, including here in the United States under FDA Emergency Use Authorization granted in April of 2020. During the quarter, we entered into a global co-marketing agreement with B Braun Avitum, the third largest dialysis company in the world and a division of B Braun, with EUR 7.5 billion in worldwide sales. Recently, we received FDA IDE conditional approval to begin the US STAR-T trial, with first patients targeted for the third quarter of this year. In the first quarter, the Korean Ministry of Food and Drug Safety approved CytoSorb for all equivalent EU approved indications in Korea, which has a population of 52 million people in South Korea, in collaboration with our partner Fresenius Medical Care. Health Canada authorized CytoSorb for use in hospitalized COVID-19 patients in Canada, with a population of about 38 million. During the quarter, we appointed two industry veterans, with strong medical device backgrounds, to help guide our future success. The first is James Komsa, who was appointed as Vice President of US Sales and Marketing. He was formerly a Vice President of the Restorative Therapies Group and Pain Group at Medtronic and also formerly a Vice President of the North East Cardiac and Vascular Group at Medtronic. Dr. David Cox joined us as Vice President of Global Regulatory Affairs. He was formerly the Vice President of Regulatory Affairs for the Tissue and Regenerative Technologies division at Integra Lifesciences. We also accelerated our clinical marketing of CytoSorb with in-depth webinars in various areas, most notably as a liver dialysis therapy in patients with liver disease and in cardiac surgery applications, particularly anti-thrombotic removal. Lastly, we signed our lease for our new Princeton, New Jersey headquarters and began building out our new manufacturing facility that is expected to support sales of roughly $350 million to $400 million, with potential product gross margins in excess of 85%. We opened a new CytoSorbents Logistics Hub in Berlin, Germany, an expanded warehouse and distribution facility to accommodate our current and future growth.

Efthymios Deliargyris, Chief Medical Officer

Thank you, Phillip. And good afternoon, everyone. Over the next few minutes, we'll review some of the important updates on our clinical programs. We are prioritizing the clinical programs that will lead us to US FDA approval. As we disclosed, we have received FDA conditional approval to execute the Investigational Device Exemption study on Ticagrelor removal during cardiac surgery. We're also resuming the REFRESH 2-AKI trial, and I'm happy to report that in addition to screening activity started in the majority of sites, we also have our first new patient enrolled. We have made significant progress on the remaining active studies, and those that will be starting in 2021. CytoSorb Therapy in COVID-19, otherwise known as the CTC Registry, has now accumulated sufficient data that we are progressing to publication by the end of this quarter, focusing on critically ill COVID-19 patients requiring extracorporeal membrane oxygenation support. The STAR Registry, meant to capture real world evidence with the use of the device for anti-thrombotic removal in patients undergoing cardiac surgery is preparing for data entry this summer. The ethics submissions in at least two countries in Europe have been completed. We're launching two important trials in Germany, the PROCYSS trial in refractory septic shock and the HepOnFire trial in acute and chronic liver failure, both of which have been submitted to ethics. We expect the first patient will be enrolled before the end of this year for both trials. We recently made the decision to close the TISORB study in the UK, driven by significant delays encountered during the pandemic and prioritization of the STAR-T trial as the primary data generation study for our FDA submission. The CYTATION trial has begun enrolling patients in three German sites as of the first quarter of this year. We'll continue to expand our internal clinical capabilities; we added 10 new members to the team in the past year and will expand our teams to ensure cost-efficient and timely execution of our clinical plan. We aim to generate data from rigorous, powered, multicenter, company-sponsored trials.

Kathleen Bloch, CFO

Certainly. Thank you, Phil and hello, everyone. For today's call, I will provide an update regarding our March 31st, 2021 financial results, and also an update around our working capital and cash runway. Product sales for the first quarter of 2021 were approximately $10.1 million, an increase of $2 million or 24% over first quarter 2020 product sales of approximately $8.2 million. This increase was primarily driven by an increase in direct sales of approximately $608,000 and also an increase in distributor sales of approximately $1.4 million. Grant revenue for the first quarter of 2021 was $455,000 compared to $551,000 in the first quarter of 2020. Total revenues, including product sales as well as grant income, increased by 22% to $10.6 million for the first quarter of 2021, compared to $8.7 million for the first quarter of 2020. Our Q1 2021 product gross margins were 77%. Excluding the negative non-recurring impact of past tariff adjustments and the offsetting non-recurring positive impact of the employee retention tax credit, product gross margins were 81% in Q1 2021, compared to 76% in Q1 2020. Our first quarter 2021 was our third best quarter in terms of product sales. We believe sales could have been even higher, had it not been for the widespread lockdowns and restrictions throughout Europe, including Germany, Austria, the UK, Italy, and others. Regarding COVID-19 sales, we estimate they were approximately $1.8 million in the first quarter of 2021, compared to approximately $1.6 million in the first quarter of 2020 and lower than the $2.6 million in COVID sales seen in the prior three quarters. However, with the resurgence of COVID-19 since March, we have seen a strengthening of COVID-19 related orders of CytoSorb. Excluding clinical trial expenses and non-cash stock compensation expenses, our core operations generated a positive EBITDA of approximately $164,000.

Phillip Chan, CEO

In terms of guidance, CytoSorbents has not historically given specific financial guidance on quarterly results until the quarter has been completed. However, provided that the current order pattern continues, and notwithstanding uncertainty related to the COVID-19 pandemic, we expect that product sales for the second quarter of 2021 will exceed those in the second quarter of 2020. Due to the recent surge in COVID-19 activity, we expect COVID-19 to positively contribute to sales in the second quarter of 2021 and for the remainder of the year. We believe that 2021 will represent another year of growth.

Operator, Moderator

Thank you. We will take our first question from Anthony Petrone of Jefferies. Please state your question.

Anthony Petrone, Analyst

Thanks. Hope everyone's well and congratulations on a strong start to the year. Maybe, Phil and Kathleen, we could dig in a little bit to underlying product sales when we back out COVID, approaching a 26% year-on-year growth level. I’m just wondering how to think about that in two buckets: one being, there certainly seems to be some reversal in underlying procedures, but also CytoSorb uptake usage triggered by COVID in non-critical areas. So how do we think about recaptured procedures driving that number versus share gains driven by COVID?

Phillip Chan, CEO

Thanks very much, Anthony. In the United States, the rates of non-COVID related procedures have been increasing. But in Europe, I think it's been touch and go because of the various lockdowns in countries around Europe, as well as Eastern Europe. So, you know, Christian can probably comment a little bit on what the environment looks like now. We're still seeing reduced numbers of elective surgeries that typically use CytoSorb. We're also seeing lower ability for our sales reps to get into hospitals due to these restrictions.

Christian Steiner, EVP Sales and Marketing

Thank you, Phil and thank you, Anthony for the question. Yes, as Phillip pointed out, the COVID situation continues to impact our business. In Q1, the second wave of ICU patients has declined. There were fewer ICU patients in the beginning of Q1. In Latin America, for example, the summer led to less COVID activity. As Phil mentioned, there were fewer patients in the US which led to roughly stable business in the US. On the other hand, COVID restrictions in our markets still impacted us. Most elective surgery programs have decreased by 40% to 60% across our markets.

Anthony Petrone, Analyst

Was there some stocking in the 27%? And then the last question for me is just on the US STAR-T trial, could you provide more details on expected sites and endpoints?

Phillip Chan, CEO

No, there was no stocking; it's in and out as patients get treated. In terms of the STAR-T trial, once we get full approval of the IDE and know exactly what the FDA has agreed to, we will provide more detail on the primary endpoints, the size of the study, the number of sites, and all that other detail.

Josh Jennings, Analyst

Hi, good evening. Thanks for taking the questions and congrats on a strong start to the year despite all the challenges. I was hoping to ask about discussions between CytoSorbents and the FDA about the CytoSorb EUA. Is there potential for a streamlined path for the critical care indication?

Phillip Chan, CEO

It's not something that we can comment on at this time. However, we believe that there is a potential benefit of having CytoSorb approved for treating ARDS in general.

Danielle Antalffy, Analyst

Thanks so much for taking the questions. I have to imagine a good portion of your competence in growth this year comes from being able to get back into European centers to market the ticagrelor and rivaroxaban removal indications. Are there centers where you're seeing ramping adoption yet in Europe?

Christian Steiner, EVP Sales and Marketing

Yes, despite the restrictions in access, we have seen progress. More than 90% of heart centers in Germany are our customers and of those, more than 60% are using CytoSorb for this new application. We're seeing positive growth despite all restrictions.

Andrew D'Silva, Analyst

Thanks for taking my question. Just to start, as it relates to the uptick in COVID cases in India. I was curious if you're seeing any increased traction in the region there with Biocon?

Phillip Chan, CEO

We are working with Biocon for a long time now. Our collaboration has tightened and increased significantly due to the current COVID situation, and this is reflected in several orders from their side.

Operator, Moderator

We have reached the end of the question-and-answer session. At this time, I would like to turn it back to management for any additional or closing remarks.

Phillip Chan, CEO

Thank you, everyone for joining us today on today's earnings conference call. We appreciate your participation. If you have any other questions, please feel free to reach out to Amy Vogel at avogel@cytosorbents.com. Hopefully, you'll join us for our Virtual Annual Meeting on June the 1st. Thank you very much for joining today.

Operator, Moderator

Thank you. That concludes our conference for today. I'd like to thank everyone for their participation. Have a great evening.